SEC Cracks Down on Bogus Marijuana Firms

Over the past two months, the SEC said it has suspended trading for five companies that claimed their operations were related to the marijuana industry.

As a result, the regulator issued an investor alert May 16 warning about possible scams involving marijuana-related investments, noting that fraudsters often exploit the latest growth industry to lure investors with the promise of high returns.

Nearly two weeks ago, the SEC said it suspended trading in Denver-based FusionPharm Inc., which claims to make a professional cultivation system for use by cannabis cultivators among others.

According to the SEC’s order, the trading suspension was issued because of questions that have been raised about the accuracy of assertions by FusionPharm concerning the company’s assets, revenues, financial statements, business transactions, and financial condition.

The SEC Enforcement Division’s Microcap Fraud Task Force scours the microcap market and proactively identifies companies with publicly disseminated information that appears inadequate or potentially inaccurate, the regulator said. It also has the authority to issue trading suspensions against such companies while the questionable activity is further investigated.

Under the federal securities laws, the SEC said it can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met.

“Recent changes in state laws concerning medical and recreational marijuana have created new opportunities for penny stock fraud,” said Elisha Frank, co-chair of the SEC Enforcement Division’s Microcap Fraud Task Force. “Wherever we see incomplete or misleading disclosures, we act quickly to protect investors.”

The SEC’s investor alert comes on the heels of announcements from two credit unions that said they are planning to provide financial services to legal marijuana businesses: the $369 million Salal Credit Union in Seattle and the $1.3 billion Numerica Credit Union in Spokane, Wash.

Colorado has also voted to form the country’s first credit union targeted at marijuana sellers.